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The Attorney General of Texas 

octaber 10, 1980 

MARK WHITE 

Attorney General 

Honorable Bob Bullock 

Comptroller of Public Accounts 

LBJ State Office Building 

Austin, Texas ‘I8774 

Opinion No. W-256 

Re: Assessment ratio applicable 

in calculating the alternative state 

franchise tax base in article 

12.01(l)(b), Taxation General 

Dear Me. Bullock: 

You inquire about the proper method of determine the value of 

property owned by corpaations in this state in order to determine their 

franchise tax liability under article 12.01(l)(b), TaxationGeneraL This 

statute provides that corporations shall pay franchise tax according to 

whichever of three alternative methods yields the greatest tax: 

(1) Except as otherwise provided in this chapter, 

every domestic and foreign corporation heretofore or 

hereafter chartered or authorized to do business in 

Texas or doing business in Texas shall file such 

reports as are required by Articles 12.08 and 12.19 and 

pay to the Comptroller a franchise tax for the period 

from May 1 of each year to and includiq April 30 of 

the following year, based an whichever of the 

following Subsections (a), (b), or (c) shall yield the 

greatest tax: 

(a) Basic Tax. Four Dollars and Twenty-five 

Cents ($4.25) per $1,000 or fractional part thereof 

applied to that portion of the sum of the stated 

capital, surplus, and undivided profits the sum of 

which for the purpcses of this chapter is hereafter 

referred to as ‘taxable capital,’ allocable to Texas 

in accordance with Article 12.02. As used in this 

chapter, the phrase ‘stated capital’ shall have the 

same meaning as defined in Article LO2 of the 

Texas Business Corporation Act; 

(b) Four Dollars and Twenty-five Cents ($4.25) 

per $1,000 or fractional part thereof applied to the 

p. 809 
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Honorable Bob Bullock - Page Two (W-256) 

assessed value for county ad valcrem tax purposes of the 

real and personal property owned by the corporation of this 

state; or 

(c) Fifty-five Dollars ($55). 

At present, 4.7 percent of all corporations pay the amount of tax determined 

under article 12.01(l)(b). See “S.B. 621; Implications for the State Franchise Tax,” w 

_Notes, (May, 1980) (publication of Comptroller’s Office of Planning and Research). You 

wish to know how the tax should be computed urder article 12.01(l)(b) after the 

effective dates of the following provisions of the Property Tax Code: 

Section 26.02. ASSESSMENT RATIOS PROHIBITED. Except 

as provided by Section 26.03 of this code, the assessment of 

property tax for taxation on the basis of a percentage of its 

appraised value is prohibited. All property shall be assessed on 

the basis of 100 percent of its appraised value. 

Section 26.03. STATE ASSESSMENT RATIO. The assessment ratio for calculating taxes for state purpcses is .OOOl 

percent. 

Section 26.03 took effect cn January 1, 1980 and section 26.02 will take effect on 

January 1, 1981. Acts 1979, 66th Leg., ch. 841, S3(g), (i), at 2315. You specifically 

inquire whether the assessment ratio for calculating the alternative state franchise tax 

base provided in article 12.01(l)(b) TaxationGeneral will be 100% or .OOOl%. 

Prior to passage of the Property Tax Code, each county assessed real property at 

some percentage of appraised market value and this assessed value became the basis 

for the alternative computation under the franchise tax. In enacting the Property Tax 

Code, the Legislature placed all units of government on a market value basis and 

declared assessment ratios unlawful except for computation of state taxes. Because of 

the invalidation of assessment ratios, a county’s assessed value within the meaning of 

art. 12.01(l)(b) becomes fair market value since counties will cease to bve any 

assessment ratio yieldhg an assessed value different from market value. However, it 

is clear that the county assessed value Is used to calculate a state tax and therefore 

applying the Property Tax Code as written, the county market value is to be used but 

the state assessment ratio provided in section 26.03 thereof is then applied to 

determine the assessed value for state tax purposes within the meaning of article 

12.01(l)(b). 

Not only &es this construction give effect to the language of both statutes, but 

it also complies with the clear legislative intent of the 66th Legislature. In construing 

the provisions of the Property Tax Code together with article 12.01(l)(b), it is necessary 

not only to give effect to the language of both statutes but also to consider Legislative 

history, the reasons for enactment of the statute, and the consequences of a particular 

construction. See art. 5429b-2, S3.03(1), (3), (5X V.T.C.S. An analysis of the legislative 

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p. 810 
Honorable Bob Bullock - Page Three N-256) 

history of the Property Tax Code fails to reveal any intent to affect the franchise tax 

computation based on real estate at all. Nowhere in the fiscal note, debate or public 

discussion was any mention made of increasing the franchise tax or changing the basis 

of computing the tax from some percentage of market value. See Fiscal Note of May 

16, 1979, bill fle for Senate Bill 621, Legislative Reference Librai 

While it might be argued that 12.01(l)(b) requires that the franchise tax be 

computed on the county assessed value, and in view of the repeal of assessment ratios 

that that value is now 100% of market value, it is clear that was not a consequence 

intended by the Legislature from both the language of section 26.03 and the legislative 

history behind the statute. Even if the statute were sbject to that construction, we 

would feel compelled to follow the rule that where interpretation of a statute leads to 

consequences which the Legislature did not contemplate, the courts (and this office) 

will adopt a construction consistent with the intention of the Legislature in passing the 

legislation. As the Supreme Court of Texas held long ago in Edwards v. Morton, 46 

S.W. 792, 793 (Tex. 1898): 

The intention of the legislature ln enacting a law is the law 

itself, and must be enforced when ascertained, although it may 

not be consistent with the strict letter of the statute. Courts 

will not follow the letter of a statute when it leads away from 

the true intent and purpose of the legislature, and to conclusions inconsistent with the general purpose of the act. . . . 

This principle has been reaffirmed in numerous cases since that time and Is the guiding 

principle in making statutory interpretations. 

It is the duty of this office and the courts of this state to follow the paramount 

rule of statutory construction, and that is to determine and follow the legislative 

intention in enacting a particular statute. See Calvert v. BritisbAmerican Oil 

Producing CO., 397 S.W. 2d 839, 842 (Tex. 1965);city 

Co.. 237 S.W. 2d 273. 278 (Tex. 1951); State v. : 

of Mason v. West Texas Utilities 

mm&e v. Waples, 188 S.W. 1037, 1038 ( Tex. 1916 Dye: , 200 Tex. S.W. - Louisiana 24 813, 815 Power (Tex. Co. 1947); v. 

Farmersville, 67 S.W. 2d 235, 237 (Tex. Comm’n App. 19332 

In enacting sections 26.02 and 26.03, we believe that the Legislature intended to 

declare all assessment ratios, other than assessment ratios for state tax purposes, 

invalid and had no intent to affect franchise tax collections or the alternative basis of 

the computation of that tax under 12.01(l)(b). We hold that these statutes should be 

construed consistently and in a manner to minimize any unintended effect on franchise 

tax collections. 

Section 26.03 applies the .OOOl percent assessment ratio to the calculation of 

“taxes for state purposes.” We construe the quoted language to include the state 

franchise tax. It is our opinion that you should use the .OOOl assessment ratio in 

calculating the state franchise tax under article 12.01(l)(b), TaxationGeneraL 

p- 811 
Honorable Bob Bullock - Page Four (I4+256) 

SUMMARY 

Franchise tax liability rnder article 12.01(l)(b), TaxationGeneral, is to be computed on the basis of .OOOl percent of the 

appraised Value of the corporation’s property. 

MARK WHITE 

Attorney General of Texas 

JOHN W. FAINTER, JR. 

First Assistant Attorney General 

RICHARD E. GRAY III 

Executive Assistant Attorney General 

Prepared by Susan Garrison 

Assistant Attorney General 

APPROVED: 

OPINION COMMITTEE 

Susan Garrison, Acting Chairman 

Jon Bible 

Rick Gllpin 

. 

p. 812